Hillshire to buy Pinnacle, in merger of meat and veggies

Mon May 12, 2014 3:23pm EDT

1 of 2. A package of Hillshire Brands Co Jimmy Dean sausages is shown with Pinnacle Foods Inc frozen vegetable Bird's Eye brand in this photo illustration in Encinitas, California after Hillshire Brands Co announced May 12, 2014 it will buy Pinnacle Foods Inc for $4.3 billion.

Credit: Reuters/Mike Blake

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(Reuters) - Hillshire Brands Co said on Monday it would buy Pinnacle Foods Inc in a $4.3 billion deal that will combine its lineup of Jimmy Dean sausages and Hillshire lunch meats with Pinnacle's Birds Eye frozen vegetables and Vlasic pickles.

Shares of Hillshire fell 5 percent after the announcement of the cash-and-stock deal, which analysts said dashed some investor hopes that Hillshire would be bought by a larger company.

The deal, Hillshire's third in a year, will make the Chicago-based company the owner of 10 complementary brands that are either No. 1 or No. 2 in their categories, bolstering its presence in the frozen, refrigerated and packaged food aisles of U.S. supermarkets.

Both Hillshire and Pinnacle focus on convenient products that appeal to similar consumers, said Hillshire Chief Executive Officer Sean Connolly, who will lead the post-merger company.

"These brands are almost siblings to one another. Meats go with vegetables, sandwiches go with pickles," Connolly told Reuters in an interview.

The deal also will expand Hillshire's cost base beyond pricy beef and pork and will create co-branding opportunities, he said. For example, Birds Eye's Voila skillet meals contain unbranded meats that could be replaced with Hillshire products.

Hillshire's other products include Aidells sausages and Gallo Salame. Pinnacle also sells Open Pit barbecue sauces, Mrs. Paul's frozen seafood and Wish-Bone salad dressing.

Hillshire, formerly the food business of Sara Lee Corp, is offering $18 in cash and half of one of its shares for each Pinnacle share.

The offer values Pinnacle at $36.48 per share, a premium of about 20 percent to Pinnacle's closing price on Friday.

Hillshire's shares were down 5.1 percent at $35.05 on Monday afternoon on the New York Stock Exchange. Pinnacle shares were up 13.6 percent at $34.59.

Including debt, the deal is valued at $6.6 billion.

Hillshire Brands said it had secured committed financing from Goldman Sachs & Co.

Hillshire expects the deal to add immediately to earnings and generate $140 million in annual cost savings three years after closing. It said it would keep its current annual dividend, but suspend its share buyback program as it works to pay down debt.

Private equity firm Blackstone Group LP, which owns about 51 percent of Pinnacle, has agreed to vote in favor of the deal, the companies said. Blackstone took Pinnacle private for about $2.2 billion in 2007, then took it public again in March 2013.

Blackstone, which invested a total of about $700 million in Pinnacle in 2007 and 2010, stands to make a capital gain in realized and yet-to-be realized profits in excess of $2 billion, according to a person familiar with the financial details.

Hillshire's advisers are Centerview Partners and Goldman Sachs, while Pinnacle's are Bank of America Merrill Lynch and Blackstone Advisory Partners.

Skadden, Arps, Slate, Meagher & Flom LLP is legal adviser to Hillshire, while Simpson Thacher & Bartlett LLP is advising Pinnacle.

(Reporting by Siddharth Cavale in Bangalore, Lisa Baertlein in Los Angeles and Greg Roumeliotis in New York; Editing by Saumyadeb Chakrabarty, Matthew Lewis and Lisa Shumaker)

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Comments (3)
PopUp wrote:
I shop the lower or upper shelves of the stores. The worst and most expensive items are at eye level. Stores change their layout often to trick us. But we watch every penny we spend and are wise to corporate tricks. I prefer shopping at my organic grocery store, where very little packaged food is available. Not really more costly than packaged foods with little nutrition and plenty of salt, sugar and fats as their ingredients. Corporate bread tastes like Danish pastries, there’s so much sweetener in it. Yuk.

May 12, 2014 10:52am EDT  --  Report as abuse
WILLOBIE wrote:
For years I chose Hillshire Farms Polska Kielbasa until I noticed they were adulterating it with turkey. They already had a turkey kielbasa for those that wanted it, but decided to save a buck by putting the turkey into the former all pork and beef product too. It took me a couple of tries, but I found a store brand that tastes like the old Hillshire Farms Polska Kielbasa.

May 12, 2014 5:01pm EDT  --  Report as abuse
WILLOBIE wrote:
For years I chose Hillshire Farms Polska Kielbasa until I noticed they were adulterating it with turkey. They already had a turkey kielbasa for those that wanted it, but decided to save a buck by putting the turkey into the former all pork and beef product too. It took me a couple of tries, but I found a store brand that tastes like the old Hillshire Farms Polska Kielbasa.

May 12, 2014 5:01pm EDT  --  Report as abuse
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California state worker Albert Jagow (L) goes over his retirement options with Calpers Retirement Program Specialist JeanAnn Kirkpatrick at the Calpers regional office in Sacramento, California October 21, 2009. Calpers, the largest U.S. public pension fund, manages retirement benefits for more than 1.6 million people, with assets comparable in value to the entire GDP of Israel. The Calpers investment portfolio had a historic drop in value, going from a peak of $250 billion in the fall of 2007 to $167 billion in March 2009, a loss of about a third during that period. It is now around $200 billion. REUTERS/Max Whittaker   (UNITED STATES) - RTXPWOZ

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